A recent article by Andrew Jeffery is a principal of Cirios Real Estatestates that now may be the time to become bullish on housing despite the ongoing issues of a looming shadow inventory, a lackluster job market and geopolitical instability.

However, the author has one huge caveat and that is … all housing markets are local and while the recovery remains in full force, there has been and will continue to be fundamentally strong markets where prices have increased while many weak ones have languished.

Jeffery’s 10 reasons to be bullish on housing:

1. Jobs. Housing follows jobs. Period. And while the job market is still weak in many areas, pockets of strength are emerging. His example is Google.

After Google Inc. announced it would be hiring as many as 6,000 new employees, the company received 75,000 applications in two weeks and is looking to retain talent in its fight against local rivals like Apple Inc, Salesforce.com and Yahoo Inc., along with social media upstarts like Facebook, Twitter, and Zynga. If housing really does follow jobs, the San Francisco Bay Area may prove to be a bright spot in 2011.

2. Jobs. Again … housing follows jobs. Consumer confidence is close to reaching last spring’s high point and while hiring hasn’t restarted in earnest, firing has slowed. And if you haven’t been fired yet, your job is reasonably secure. Job security drives optimism, planning for the future and … home buying.

3. Pent-up demand. Consider this: 2006 college grads entered the labor market just as home prices began to collapse. Those who still have a job kicked and scratched their way through the Great Recession and are now 27, perhaps married or getting there and kids may be on the horizon. Today’s young adults are under-represented as homeowners compared to historical norms, and a disproportionately large chunk lives at home. As the job market returns to life, this trend is likely to reverse.

4. Foreclosures. According to Jeffrey, banks are rational actors and are unlikely to destroy the value of their own assets — which is exactly what flooding the market with bank-owned properties would do. Coupled with political pressure and an ever-increasing maze of foreclosure litigation gumming up the repossession process, foreclosed inventory will continue at its steady stream.

It will take years (around four based on current estimates) to work through shadow inventory, but there will be no flood.

5. Inflation. The author believes that inflation expectations, not inflation, are what we should be worried about.

Rising inflation expectations pull demand forward, pushing up prices in an inconvenient self-fulfilling prophesy. Historically, real estate has been a rather good hedge against inflation. As people start to get nervous about inflation, they buy real estate.

6. Higher rents and low interest rates. Rents are rising, inventory is down, and landlords are back in the driver’s seat. And despite a recent bounce, interest rates remain historically low. High rents and low interest rates push would-be renters towards buying, particularly in areas with job markets that are relatively less weak than the country at-large.

7. A booming apartment market. Homeownership is at a 10-year low, young adults are moving out of their parents’ basements and into apartments, and leverage is fantastically cheap. The multifamily space typically recovers first and historically this is good news for housing.

8, Investor appetite remains strong. Distressed opportunities, across all types of real estate have come to market slower than expected, which means buyers have had more time to hit the pavement and raise money. Investor demand for real estate remains robust. With limited opportunities, competing buyers are driving up prices of distressed assets. In many markets, for every well-priced foreclosure there are a dozen all-cash buyers looking for a deal. The baby boomers are eyeing trading down into smaller, retirement-friendly homes and even more are looking for reliable fixed income.

9. The stock market. With the Dow Jones Industrial Average back above 12,000 and the S&P 500 Index topping 1,300 for the first time since mid-2008, the wealth effect is in full effect, as buyers look to sell stock for a down payment and the confidence to pull the trigger on a new home.

10. Confidence. Do you feel better or worse about the U.S. economy, and more importantly your own personal economy than you did two years ago? Challenges but we Americans are a resilient, optimistic bunch.

Confidence in the present builds confidence in the future, and confidence of all types increases risk-taking activities.

The report signals a strong demand for urban living in Miami for the first time in the city’s history. According to the study, 78% of the condo units built during the building boom in the downtown Miami area have been sold. Unsold inventory in the downtown area has now fallen to roughly 4,960 units—a 40% drop since 2009. At the same time, average monthly leasing velocity has risen 7% in the past year.

Assuming current sale rates continue, the Miami downtown’s remaining inventory could be sold-out within 26 months. Quite an accomplishment since many analysts believed it would take nearly a decade to reach absorption.

Total condo sales in Downtown Miami were up approximately 36% year-over-year from 2009 to 2010, with 3,780 units sold in 2010. Seventy-eight percent of the 22,439 condo units completed since 2003 have been sold. Meanwhile, average sales prices in 2010 were up in the fourth quarter and on a year-over-year basis. The average unit sales price in 2010 was $347,729, a 15% increase from the average price of $302,254 in 2009. Average condominium sales price per square foot in 2010 was up 10% to $300 per square foot.

Much of the sales activity taking place can be attributed to an infusion of capital from abroad. Investors from rebounding markets such as Brazil, Mexico, Colombia, and Argentina are increasingly viewing downtown Miami an attractive place to invest. According to some, international buyers now account for roughly 60% of the sales taking place in Miami’s urban core.

One of the most important outcomes of the residential occupancy boom is Downtown Miami’s newfound destination status and commercial growth. What was once considered a strict 9-to-5 employment district is now emerging as a vibrant 24-7 city filled with a wide array of culinary, entertainment, cultural and arts experiences.

Prices fell in December from November in all but one of the 20 cities it tracks. The 20-city index declined 1 percent.

The only market to see a gain was Washington.

Eleven of the markets hit their lowest point since the housing bust, in 2006 and 2007: Atlanta, Charlotte, N.C., Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Ore., Seattle and Tampa, Fla.

Prices are expected to keep falling for at least the next six months.

Some of the worst declines are in cities hit hard by foreclosures and high unemployment, including Detroit, Phoenix and Tampa. Many people are holding off buying or selling homes because they fear the market hasn’t hit bottom yet.

A large number of homes that aren’t selling are contributing to a second wave of price declines since the boom years. Many of them have been vacant for months.

In December, prices fell for the sixth straight month and for the eighth time in the past 11 months. Foreclosures are also expected to increase as the year goes forward.

The housing recovery is uneven across the United States, with coastal cities in California and the Northeast faring much better than the Midwest and Southeast. One exception is Dallas, which has avoided some of the big losses seen elsewhere.

100 Florida Condo Projects Lose Fannie Mae Financing ApprovalAccording to a report from CondoVultures.com, more than 100 new, Florida condominium projects, including 28 in South Florida have lost their financing approval certification from Fannie Mae in the last six months, making it more challenging for buyers to obtain mortgages when purchasing units in any of the buildings.

As of February 2011, there are 160 new Florida condominiums with the required financing certification needed for lenders to provide mortgages that would qualify to be resold on the secondary market to the public-private entity Fannie Mae and others.

As a result, financing a new condo in Florida just got tougher for those buyers who lack the cash to purchase a unit with no mortgage. Dozens of projects have failed to renew their certification with Fannie Mae.

The question being asked is, did the scrutiny become more stringent or did the projects simply decide the approval was unnecessary given the resistance by banks to originate mortgages for new, Florida condo purchases.

Fannie Mae certification is essential for lenders that originate mortgages with the intention of reselling the loans on the secondary market. Residential loans that fail to meet Fannie Mae’s guidelines are typically maintained for the term of the loan by the lender that originated the mortgage.

Miami-Dade County had 17 projects drop off the Fannie Mae list while Palm Beach County had nine projects dropped off the Fannie Mae list.

According to a survey by the University of Florida, optimism has increased slowly but steadily in Florida real estate markets through the fourth quarter of 2010.

The fourth quarter Survey of Emerging Market Conditionsfound improvement in several key categories, including the outlook for sales in new single-family homes and condominiums, office occupancy, retail occupancy, land investment and capital availability.

Much of the optimism derives from politics with the defeat last fall of Amendment 4, a proposed constitutional amendment that would have required a referendum for all changes to local government comprehensive land-use plans. The conclusion of mid-term elections also eased respondents’ uncertainty as it provided a clearer picture of the future.

Survey respondents’ expectations for occupancy and rent increased across every property type. The investment outlook rose in a majority of the property types, and the statewide outlook was the highest since the survey’s inception in 2006. Additionally, private capital is abundant as investors seek the few good products on the market. Overall, the market appears to be improving and will continue to improve at a slow pace over the next year.

Despite the positive outlooks in many asset classes, respondents’ optimism is tempered by troublesome economic factors, most notably Florida’s high unemployment rate of 12 percent. Respondents also relayed fears over federal, state and local budget issues.

The outlook for single-family and condominium sales increased slightly in the fourth quarter but home builders continue to have a negative outlook because financing is difficult to obtain and lower prices in the foreclosure and short-sale market take potential customers away from the new housing market.

Expectations for office and retail occupancy continued to improve. Occupancy expectations in the office sector increased, and the outlook for rental rates increased slightly but is expected to continue lagging inflation. In the retail sector, occupancy expectations improved for all property types.

Respondents believe occupancy will increase in neighborhood centers and large retail centers. Accordingly, the investment outlook in retail increased for neighborhood centers while declining for the remaining property types.

Land investment and capital availability also rose this quarter. More respondents believe land is beginning to be priced at levels that support longer-term investment, despite the fact that lack of financing for land purchases continues to be a concern. The optimistic outlook for capital is due in large part to respondents’ belief that future availability will increase.

Expectations for apartment occupancy and the industrial sector were mostly stable.

According to Lodging Econometrics, construction financing for new hotel projects will remain largely unavailable in 2011 and lodging operating metrics will improve, but only at a slow pace.

Lodging Econometrics (LE), based in Portsmouth, NH compiles and maintains a census of open and operating hotels of more than 60,000 hotels in the U.S. and Canada. The firm publishes a construction pipeline overview on a quarter basis. LE defines three stages in the construction pipline; Under Construction, Starts Next 12 Months and Early Planning.

The firm’s 4th Quarter 2010 report indicates that developers pushed a large number of their projects in the construction pipeline from a “scheduled start” back to early planning. As a result, the number of scheduled starts decreased 15% by projects and 13% by rooms quarter-over-quarter, while early planning saw an 8% project and 6% room increase.

In Q4 2010, few new projects started construction. This resulted in a historic low of 449 projects/53,991 rooms in the “under construction” stage, which now accounts for just 14% of all projects in the total hotel construction pipeline.

For 2011, LE is now projecting just 446 hotels/46,343 to come online, a gross growth rate of 0.9%. That’s a fall-off of over two-thirds from the cyclical highs in 2008 and 2009. For 2012, the LE forecast calls for 487 hotels/48,860 rooms to exit the pipeline as new supply. In 2010, 635 new hotels/70,849 rooms opened, just half of what opened in 2009, resulting in a supply growth rate of 1.5%.

Since banks are not likely to finance new construction until most of the “distressed loans” are cleared from their portfolios and the lodging industry’s operating performance has improved, construction activity will be subdued at least into 2012.

LE’s overview indicates that the construction pipeline for hotels is at its lowest level since Q2 2005, with 3,122 projects/372,813 rooms at the end of Q4. With just 1,241 projects/151,435 rooms entering the pipeline in 2010, new projects are at a low not seen since 2004 and are expected to remain in a low into 2012.

Scheduled starts in the next twelve months declined for an 11th consecutive quarter to 1,036 projects/112,459 rooms.

The following charts are taken from the firm’s latest executive summary.

On February 11th, I attended a conference here in Fort Myers entitled, Lee County in the Year 2035: Back to the Future? A number of notable local and state experts shared their predictions of what Lee County will look like in the year 2035 and how we will get there.

I attended the morning session only which discussed, The Demographics in 2035 and The Economy in 2035. Presenters during this part of the conference were Jim Nathan, Dr. Erin Harrel, Thomas Scott, Thomas Wallace, Hank Fishkind and Woody Hanson.

Over the coming weeks, I will report on some of the more interesting topics discussed during the conference, however, in this post I will discuss one of the more interesting graphs displayed during Woody Hanson’s presentation.

Woody’s topic was entitled The Era of Less. He presented a number of interesting facts about the Lee County housing market but the most notable was his graph called A History of Home Values. The original chart was published in August 2006. An updated chart was presented in May 2010 in The Big Picture (see below).

The chart goes back to the year 1890 which is the benchmark level (100) on the chart. If a house sold in 1890 for $100,000 (inflation adjusted in today’s dollars), an equivalent house would have sold for $66,000 81 1920, $199,000 in 2006 and around $145,000 today. The chart predicts a value of $110,000 before the market starts to turn around.

The graph was the work of Dr. Robert J. Shiller, the Yale economist Robert J. Shiller who created an index of American housing prices going back to 1890. It is based on sale prices of standard existing houses, not new construction, to track the value of housing as an investment over time. It presents housing values in consistent terms over 116 years, factoring out the effects of inflation.

In 1991, he formed Case Shiller Weiss with economists Karl Case and Allan Weiss. The company produced a repeat-sales index using home sales prices data from across the nation, studying home pricing trends. The index was developed by Shiller and Case when Case was studying unsustainable house pricing booms in Boston and Shiller was studying the behavioral aspects of economic bubbles. The repeat-sales index developed by Case and Shiller was later acquired and further developed by Fiserv and Standard & Poor, creating the Case-Shiller index.

Back in 2005 on CNBC, Shiller noted that housing price rises could not outstrip inflation in the long term because, except for land restricted sites, house prices would tend toward building costs plus normal economic profit. He warned of an impending implosion in the U.S. real estate market. At the time, a co-panelist vehemently disagreed.

Writing in the Wall Street Journal in August 2006, Shiller again warned that “there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected.”

According to a recent report issued by Zillow, the U.S. housing problems may be getting worse as 27 percent of U.S. mortgage-holders were underwater in the fourth quarter of 2010. That total compares with 23.2 percent during the third quarter.

Less than one in every 1,000 (0.09 percent) U.S. homes were liquidated in foreclosure in December, according to Zillow, down from 0.12 percent in October, when foreclosures peaked. Foreclosures are expected to increase again in early 2011, which may cause negative equity to fall, as some underwater homeowners lose their homes and thus are no longer underwater.

Executives at Zillow believe the homeowner tax credit last year interrupted the housing correction that was taking place. The good news is that we’re getting closer to the bottom.

In December 2010, monthly depreciation in home values notched up again to -0.9% from November and home values fell 5.9% from levels in December 2009. The median home value nationally in December was $175,215, down 27% from its peak in June 2006. Monthly home value depreciation was at its highest level since January 2009. (see charts)

According to an article published in the Wall Street Journal, data from Moody’s Analyticsproves that now is a great time to buy real estate. Home affordability has returned to pre-housing bubble levels or even fallen below the average in many U.S. markets.

Housing affordability by the end of September 2010 had returned to or fallen below the average reached between 1989-2003 in 47 of the 74 housing markets that Moody Analytics tracked.

In September 2010, the ratio of home prices to annual household income had fallen to 1.6 – below the historical average of 1.9 between 1989 and 2003. The ratio peaked in 2005 at 2.3.

Some of the most undervalued markets include Cleveland, Detroit, Las Vegas, Atlanta, and Phoenix. But those cities also are facing high rates of foreclosures and more borrowers defaulting on their mortgages that could decrease values further in those cities before they start to improve.

In Phoenix, for example, it’s become cheaper to buy than to rent, but the question is … can you qualify for a loan?

The other measure of housing affordability is the relationship between house prices and rents. Measured by the price-to-rent ratio (the price of a typical home divided by the annual cost of renting that home) prices are fairly valued, or undervalued, in around 20 markets. Nationally, the price-to-rent ratio stood at 14.85 at the end of September, above the 1989-2003 average of 12. The data suggest pockets of the country have further to fall

Home prices still remain overvalued by both measures in several markets, including Seattle, Charlotte, New York and Portland, Ore.

A recent Wall Street Journal article, reports that despite increasing bank profits and the rising prices of bank stocks, some banks have yet to reckon with all their “toxic” real estate assets.

Banks still hold plenty of the bad assets including mortgage-backed securities, collateralized debt obligations and other risky instruments. Their potential impact concerns some accounting and banking observers.

According the report, the top 10 U.S.-owned banks had $13.8 billion in “unrealized losses” that have lasted at least a year in their investment portfolios as of Sept. 30.

Such losses don’t get counted against earnings as long as the banks believe the investments will later rebound. The WSJ analysis shows that if these losses were assessed against earnings, it would have reduced the banks’ pretax income for the first nine months of 2010 by 21%.

Many believe that with the banking recovery well under way, the banks should no longer delay a reckoning and should count those losses against earnings.

Another issue that clouds bank’s profits lies in the fact that the value of many risky assets are based solely on the banks’ own estimates—leaving valuations uncertain and, some critics say, overstated.

Many believe the strategy of “extend and pretend” has been the result for the past two years as they believe they will ultimately realize the assets’ full value by holding onto the securities and collecting the principal and interest payments associated with them.

A large part of the problem lies with “Level 3″ securities, illiquid investments that can’t be easily valued using market prices. According to the WSJ analysis, as of Sept. 30, the top 10 banks had $360.7 billion in “Level 3″ securities. That amounts to 42.6% of the banks’ shareholder equity, a large amount of assets whose value is hard to verify.

Many analysts believe banks are deluding themselves about the future value of those securities, and whether they will ultimately recover as much from those securities as they contend they will.

One example is Citigroup Inc. which didn’t mention its high level of Level 3 securities when it announced its 2010 fourth-quarter earnings. As of Sept. 30, the bank held $79.1 billion of Level 3 assets—equal to 48% of its book value, including billions in credit derivatives, asset-backed securities and some subprime-mortgage-backed securities.

According to a recent article in the Wall Street Journal, sales of homes in many vacation communities across the U.S. soared last year to levels not seen since boom times — driven by deep discounts, cash purchases and buyers’ rising stock portfolios.

Areas on the rise include Mercer Island, Wash., where sales nearly tripled in 2010, compared with a year earlier, reaching par with 2006 volume there. On Hilton Head Island, S.C., sales rose 14% for the year and Palm Beach, Fla., experienced a 40% annual increase and a 54% increase in homes under contract, indicating an especially strong fourth quarter. Palm Beach sales volume now is comparable to its 2007 peak.

Everyone is asking whether the momentum will last but the strength of second-home sales paints a very different reality to the overall housing market, which is expected to worsen in 2011.

The Case-Shiller housing index of 20 cities showed prices across the U.S. fell at the end of 2010, and most analysts predict another 5% to 10% slide in 2011.

According to economist Lawrence Yun of the National Realtors Association, the comeback has been helped by gains in the stock market and an improving economy, which have made wealthier Americans more upbeat about the future. According to the NAR, one in 10 real-estate transactions in 2009 was for the purchase of a vacation home. And though a small fraction of the overall market, it is significant because vacation homes are often big-ticket properties and attract discretionary buyers.

In some locations, prices are even inching upward. As an example, in Cape Cod, MA sales climbed nearly 9% in 2010 from 2009, while prices rose 7%. Monroe County, PA (Pocono Mountains) saw a 3% decline in transactions, however, its Lake Naomi resort community was up nearly 15%.

In most markets where demand has improved, prices have not increased mainly due to financing where banks are requiring 25% down and crystal clean credit.

Some second homes had been stuck on the market because sellers wouldn’t budge on price; unlike owners of primary homes, they often aren’t in a hurry to move.

The increase is the largest since the index rose seven points from March to April 2010, and the score of 77 is the highest since the April 2010 mark of 78.

Each of the five components that make up the index registered gains, with the largest increase coming in the perceptions of U.S. economic conditions over the next year category, which climbed 12 points to 78.

Confidence in purchasing big-ticket items, such as cars and appliances, rose eight points to 84, and perceptions of U.S. economic conditions over the next five years also reached 84, a six-point increase. Perceptions of personal finances now compared with a year ago rose four points to 55, and perceptions of personal finances a year from now rose two points to 83.

Many believe the unexpected rise may have resulted from sustained gains in the stock market over the past two months and recent media coverage that has focused on an improving economy.

Floridians are benefitting as their investments in the stock market – either directly or through 401(k) and pensions – have improved their portfolios.

Despite the increase in confidence, unemployment and declining housing prices remain troublesome and while most economists expect improvement on the job front over the next year unemployment will remain high.

The research center conducts the Florida Consumer Attitude Survey monthly. Respondents are 18 or older and live in households telephoned randomly. The preliminary index for January was collected from 418 responses.

According to an article in the New York Times, despite the lingering effects of the recession, more people visited New York City in 2010 than in any other year.

The problems in the economy did not stop an estimated 48.7 million people from visiting the city last year. The estimated increase of almost 7 percent came after tourism in the city dipped to about 45.5 million visitors in 2009.

Visitors, many of them from foreign countries had extra buying power against a weak dollar. Tourists spent $31 billion in the city last year, up about 10 percent from 2009.

The article reported that the hospitality industry — hotels, restaurants, museums and attractions — added 6,600 jobs last year and now employed more people than it ever had, about 320,000 workers. At the region’s airports, including Newark Liberty International, the number of domestic travelers was flat and still below prerecession levels but the number of passengers on international flights was nearing an annual high heading into December.

Even with a hotel-building boom that began before the recession, the city’s hotel rates averaged more than $250 a night in Manhattan. The overall occupancy rate for hotel rooms in Manhattan in 2010 was more than 85 percent, up about 5 percent from 2009.

Several museums logged their highest annual attendance last year. At Museum of Modern attendance surpassed three million in the fiscal year that ended June 30. At the Guggenheim Museum, attendance was about even with 2008’s, slightly more than 1.1 million visitors, but down from 1.3 million in 2009, when the museum celebrated its 50th anniversary.

New York is expected to rank as the country’s top tourist destination for 2010, beating Orlando, Florida.

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